The business manager of Penn Hills School District said he likely would reject any salary and benefits package that requires the district to raise taxes or dip into cash reserves to settle a labor dispute.

"We have the seventh-highest property tax rate in the state," Richard Liberto said. "I cannot, in good conscience, suggest that the board raise them any higher to settle the contract."

The board voted last week to enter the fact-finding process, which requires that each side submit proposals to a neutral arbitrator appointed by the state Labor Relations Board. The arbitrator, retired Penn State law professor Jane Rigler, is expected to issue a nonbinding recommendation in early May. She declined to discuss what factors she will consider before making her recommendation.

The district's last offer to its 417 teachers, who have been working under the terms of a contract that expired Aug. 31, is a five-year deal with no raise in year one, a 3.25 percent raise the second year, 3.5 percent the third year, and 3 percent each of the final two years. The district also wants teachers to pay 7 percent of their health insurance premiums by the last year of the contract.

As part of the fact-finding process, closed-door negotiating sessions began last week. Both sides agreed not to speak publicly about the negotiations.

Citing the gag order, Liberto said he could only reiterate that his position has not changed since last month, when he stated that a tax increase would be needed to meet the union's demand for a five-year contract with raises of about 6 percent each year plus expanded medical benefits.

In addition to their salary request, the teachers want to continue paying 1.2 percent of their salaries for health insurance and reduce the contribution to 0.4 percent for employees who don't cover spouses and families.

A review of 11 cases in the past two years in which teachers and districts went to fact-finding found that none were acceptable to both parties. If either party disagrees, the findings are made public for 10 days, after which it is asked to reconsider the recommendation. If that fails to produce a contract, the negotiating process starts over. Sometimes, the process drags on for years.

To avoid a tax increase, the teacher's union has suggested the district use its reserves, or fund balance, to increase teacher salaries

But Liberto has said he would recommend the board reject that option.

Current financial statistics

The district is expected to end the current fiscal year on June 30 with about $1 million in its accounts, Liberto said. Another $1 million has been set aside for mandated increases to the state pension fund that are scheduled to take effect in 2012.

The state recommends that school districts maintain about 8 percent of its budget, or about $5 million in Penn Hills' case, in cash reserves.

The fact-finding process and gag agreement signal a new phase for the negotiations, which largely have played out in public and been marked by animosity.

Butch Santicola, a spokesman for the Pennsylvania Education Association, with which the Penn Hills teachers union is affiliated, said he does not believe the gag covers all public commentary.

"We've agreed not to bargain in public, but that doesn't mean we're giving up our right to free speech, including what's posted on our Web sites," Santicola said.

Union officials have noted that the district first broke an agreement to keep negotiations confidential when the board revealed last fall that teachers initially asked for a five-year contract with 15 percent annual raises. The district offered teachers a two-year deal with no raises and significantly higher contributions to health insurance.

After the board began using the district's Web site to promote its position, the union responded with a Web site and Facebook page of its own. A four-day strike in February heightened emotions further, and the district posted comments critical of the teachers on its electronic message board on Frankstown Avenue